Payments to the security company have been reduced by £48m to cover additional military and police costs, and by a further £37m for project management failures.

Games Organisers said the settlement ensured that taxpayers' interests were protected, while "at the same time recognising that G4S ultimately provided over 80% of the man-guarding hours it had contracted to supply".

Neil Wood, LOCOGs Chief Financial Officer said:

"We are pleased to have reached an agreement that protects taxpayers interests by reducing the payment due to G4S by £85m. The savings arising from this settlement brings the total savings to the public purse from the LOCOG venue security budget to £102m compared to the position in December 2011.

"We would like to thank the Military and the Police for their exceptional and outstanding support during the Games in providing a robust, effective, professional and friendly security operation.

"We would also like to thank the G4S guards who worked alongside the Military, the Police and the Volunteers to deliver a safe and secure Games in spite of the high profile challenges faced by the G4S Group.

"The Home Office has been consulted on the settlement and fully supports the position reached between LOCOG and G4S."

– Neil Wood, The London Organising Committee of the Olympic Games and Paralympic Games Ltd

G4S' £70 million loss over its London 2012 Olympic and Paralympic contracts follows months of negotiations with Games organisers Locog.

The security group also incurred additional costs of around £18 million relating to charitable donations, fees and the cost of sponsorship and marketing.

The UK Government is an important customer for the group and we felt that it was in all of our interests to bring this matter to a close in an equitable and professional manner without the need for lengthy legal proceedings.

David Taylor Smith, one of the directors of security firm G4S who has quit over the firm's failure to supply enough security guards for the Games, is an ex-British Army officer, who joined the firm as managing director of G4S Hong Kong in 1998, before going on to head its UK and Ireland operation.

In January, he was appointed as regional chief executive of the UK and Africa region. Mr Taylor-Smith and Ian Horseman Sewell, who is the other G4S director to resign, are not expected to receive any pay-offs outside of notice entitlements within their contracts.

Keith Vaz, chairman of the Commons Home Affairs Select Committee, said: "This is the right decision by senior officials at G4S to take responsibility for the fiasco of G4S's involvement in Olympic security preparations.

"This however does not represent closure. As the Home Affairs Committee recommended, G4S must address outstanding issues concerning the waiving of the management fee and the ex-gratia payments it should make to the employees it treated in such a cavalier fashion."

He went on: "A strong and clear message to companies that receive taxpayers' money has been sent.

"Those who fail to deliver on contracts must pay the ultimate price. It is now imperative that the Government set up the procurement risk register that the committee recommends."